Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Monday, May 20, 2019

horizontal drilling at a 14 month low; April's global oil supplies short of demand despite flat OPEC output

oil prices rose for the first time in four weeks this week, as the threat that hostilities in the Middle East would disrupt global oil supplies overshadowed the rapidly deteriorating trade dispute between the US and China...after falling 28 cents to $61.66 a barrel on a resumption of that trade war last week, prices of US crude for June delivery initially rose to as high as $63.33 a barrel early Monday on news that four ships, including two Saudi oil tankers, had been sabotaged off the UAE coast, just outside the Strait of Hormuz, but then gave up those gains and fell with Wall Street as a negative turn in the U.S.-Chinese trade talks spooked markets, with oil prices ending the day 1% lower at $61.04 a barrel...oil prices then opened lower on Tuesday but again jumped higher after Saudi Arabia reported a drone attack against its pipeline infrastructure that disabled two pumping stations and sent WTI crude to a gain of 74 cents, or 1.2 percent, at $61.78 a barrel...oil prices opened lower Wednesday on the Tuesday evening API report of a massive build of US crude inventories, but shrugged off that increase in crude stockpiles even when confirmed by the EIA later in the day to settle 24 cents higher at $62.02 per barrel....oil prices then jumped as much as 2% higher on Thursday after the Saudis launched air strikes in retaliation for the attacks on their pipeline infrastructure before settling 85 cents higher at $62.87 per barrel, the highest close in two weeks...oil prices then fell 11 cents to $62.76 a barrel on Friday on fears of falling demand due to a worsening standoff in Chinese-U.S. trade talks, but still ended the week with an increase of 1.8% on the deteriorating developments in the Middle East...

natural gas prices also ended the week higher, boosted by forecasts of much warmer than normal temperatures over the major power demand centers from the middle of the U.S. to the East Coast, as yet another above-normal inventory build was brushed off as natural gas for June delivery ended the week 1.2 cents higher at $2.631 per mmBTU...the natural gas storage report for the week ending May 10th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 106 billion cubic feet to 1,653 billion cubic feet by the end of the week, which meant our gas supplies were 130 billion cubic feet, or 8.5% more than the 1,523 billion cubic feet that were in storage on May 11th of last year, while still 286 billion cubic feet, or 14.7% below the five-year average of 1,939 billion cubic feet of natural gas that have typically been in storage as of the second weekend in May in recent years....this week's 106 billion cubic feet injection into US natural gas storage was in line with estimates from surveys of analysts of a 104 billion cubic foot increase in supplies, while it was somewhat higher than the 88 billion cubic feet of natural gas that have historically been added to gas storage during the same week of May....this week's increase was the seventh 5 year seasonal high injection in a row, and the 498 billion cubic feet of natural gas that have been added to storage over the past 5 weeks was the most natural gas added to storage over 5 continuous weeks since a record 562 billion cubic feet week added over the 5 weeks to June 20, 2014

The Latest US Oil Supply and Disposition Data from the EIA

this week's US oil data from the US Energy Information Administration, reporting on the week ending May 10th, showed a sizable addition to our commercial supplies of crude for the sixth time in eight weeks, as a massive amount of crude oil that could not be unaccounted for shifted from the demand side to the supply side of the petroleum balance sheet...our imports of crude oil rose by an average of 919,000 barrels per day to an average of 7,612,000 barrels per day, after falling by an average of 721,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 1,025,000 barrels per day to 3,347,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,265,000 barrels of per day during the week ending May 10th, 106,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reported to be down by 100,000 barrels per day to 12,100,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 16,365,000 barrels per day during this reporting week...

meanwhile, US oil refineries were using 16,676,000 barrels of crude per day during the week ending May 10th, 271,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net of 524,000 barrels of oil per day were added to the oil that's in storage in the US....​hence, ​we can see that ​this week's crude oil figures from the EIA would seem to indicate that our total working supply of oil from net imports and from oilfield production was 835,000 barrels per day short of what was added to storage plus what the oil refineries reported they used during the week...to account for that disparity between the supply of oil and the disposition of it, the EIA inserted a (+835,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"....with a switch in the unaccounted oil figure from -856,000 last week to +835,000 this week, we have to figure that both weeks' crude oil metrics are​ off by statistically significant amounts, and that week over week comparisons are essentially meaningless... (for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)....  

further details from the weekly Petroleum Status Report (pdf) indicated that the 4 week average of our oil imports rose to an average of 7,217,000 barrels per day last week, still 9.6% less than the 7,986,000 barrel per day average that we were importing over the same four-week period last year...the 524,000 barrel per day increase in our total crude inventories ​was due to a​ 776,000 barrels per day addition to our commercially available stocks of crude oil, which was partially offset by a 252,000 barrel per day withdrawal from the oil stored in our Strategic Petroleum Reserve, part of a release from our reserves intended to blunt the shortage of crude in the Gulf resulting from the Venezuelan oil export sanctions...this week's crude oil production was reported to be 100,000 barrels per day lower at 12,100,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day lower at 11,600,000 barrels per day, while a 5,000 barrel per day increase to 481,000 barrels per day in Alaska's oil production was not enough to impact the final rounded national total...last year's US crude oil production for the week ending May 11th was at 10,723,000 barrels per day, so this reporting week's rounded oil production figure was 12.8% above that of a year ago, and 43.6% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...    

meanwhile, US oil refineries were operating at 90.5% of their capacity in using 16,676,000 barrels of crude per day during the week ending May 10th, up from 88.9% of capacity the prior week, but still a bit below the historical refinery utilization rate for this time of year....however, the 16,676,000 barrels per day of oil that were refined this week were a bit more than the 16,635,000 barrels of crude per day that were being processed during the week ending May 11th, 2018, when US refineries were operating at 91.1% of capacity... 

even with the increase in the amount of oil being refined, gasoline output from our refineries was still somewhat lower, decreasing by 217,000 barrels per day to 9,912,000 barrels per day during the week ending May 10th, after our refineries' gasoline output had increased by 202,000 barrels per day the prior week....with that decrease in gasoline output, this week's gasoline production was 5.3% below than the 10,462,000 barrels of gasoline that were being produced daily during the same week last year....​however, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 175,000 barrels per day to 5,264,000 barrels per day, after that distillates output had decreased by 39,000 barrels per day the prior week...with this week's increase, the week's distillates production was 4.6% more than the 5,031,000 barrels of distillates per day that were being produced during the week ending May 11th, 2018.... 

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell for the twelfth time in 13 weeks, decreasing by 1,123,000 barrels to 225,024,000 barrels over the week to May 10th, after gasoline supplies had fallen by 596,000 barrels over the prior week....our gasoline supplies fell even though the amount of gasoline supplied to US markets decreased by 723,000 barrels per day to 9,148,000 barrels per day, after increasing by 643,000 barrels per day the prior week, because our exports of gasoline rose by 294,000 barrels per day to 785,000 barrels per day while our imports of gasoline fell by 362,000 barrels per day to 752,000 barrels per day...so even after having reached an all time record high sixteen weeks ago, our gasoline supplies are now 3.0% lower than last May 11th's inventory level of 232,014,000 barrels, and remain roughly 2% below the five year average of our gasoline supplies at this time of the year...  

with the increase in our distillates production, our supplies of distillate fuels rose for the first time in 9 weeks, but only by 84,000 barrels to 125,647,000 barrels during the week ending May 10th, after our distillates supplies had decreased by 159,000 barrels over the prior week....our distillates supplies inched up even as the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 198,000 barrels per day to 4,094,000 barrels per day, as our exports of distillates fell by 128,000 barrels per day to 1,199,000 barrels per day while our imports of distillates fell by 70,000 barrels per day to 41,000 barrels per day ...​but even ​with this week's inventory decrease, our distillate supplies were ​still ​9.3% higher than the 114,946,000 barrels of distillate that we had stored on May 11th, 2018, even as they remain roughly 2% below the five year average of distillates stocks for this time of the year...

finally, despite ​near--​record oil exports and rising refinery throughput, our commercial supplies of crude oil in storage increased for the twelfth time in 17 weeks, rising by 5,431,000 barrels, from 466,604,000 barrels on 3rd to 472,035,000 barrels on May 10th....that increase​ ​lifted our crude oil inventories to 2% ​above the recent five-year average of crude oil supplies for this time of year, and to more than a third higher than the prior 5 year (2009 - 2013) average of crude oil stocks as of the first weekend in May, with the disparity between those comparisons arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...since our crude oil inventories have generally been rising since this past Fall, after generally falling until then through most of the prior year and a half, our oil supplies as of May 10th were 9.1% above the 432,354,000 barrels of oil we had stored on May 11th of 2018, but at the same time still 9.4% below the 520,772,000 barrels of oil that we had in storage on May 12th of 2017, and 7.4% below the 509,797,000 barrels of oil we had stored on May 13th of 2016...      

OPEC's Monthly Oil Market Report

next we're going to review OPEC's May Oil Market Report (covering April OPEC & global oil data), which was released on Tuesday of this past week and is available as a free download, and hence it's the report we check for monthly global oil supply and demand data...the first table from this monthly report that we'll look at is from the page numbered 57 of that report (pdf page 67), and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings indicate...for all their official production measurements, OPEC uses an average of estimates from six "secondary sources", namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to thus resolve any potential disputes that could arise if each member reported their own figures...

April 2019 OPEC crude output via secondary sources

as we can see from this table of official oil production data, OPEC's oil output fell by 3,000 barrels per day to 30,031,000 barrels per day in April , from their revised March production total of 30,034,000 barrels per day...however that March figure was originally reported as 30,022,000 barrels per day, so that means their production for April was, in effect, a 9,000 barrel per day increase from the previously reported figures (for your reference, here is the table of the official March OPEC output figures as reported a month ago, before this month's revisions)...

the largely involuntary Iranian output cuts of 164,000 barrels per day due to US sanctions on their exports were more than offset by increases in output from Iraq, Libya and Nigeria, which also served to offset production cuts from Saudi Arabia and Angola...the 28,000 barrels per day increase in output from Venezuela is a bit of a surprise; considering recent media reports that their production had continued to fall under pressure of the US led coup attempts...meanwhile, the 113,000 barrels per day increase in the output from Iraq now puts them back over the output allocations assigned to each member after their December 7th meeting, when OPEC agreed to cut 800,000 barrels per day as part of a 1.2 million barrel per day cut agreed to with Russia and other oil producers, as does the 92,000 barrels per day increase in the output from Nigeria, as can be seen in the table of OPEC production allocations we've included below:

February 6 2019 Platts on OPEC allocations

the above table came from a February 6th post on Saudi cuts and OPEC allocations at S&P Global Platts, and shows average daily production quota in millions of barrels of oil per day for each of the OPEC members for the first 6 months of this year, as was agreed to at their December 2018 meeting...note that Venezuela and Iran, whose oil exports are being sanctioned by the Trump administration, and Libya, which has been beset by disruptive civil strife, are exempt from any production quotas, and that only Libya had produced any more than they did in the 4th quarter of 2018, as ​can be seen in the fifth column of the OPEC production table above...

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from May 2017 to April 2019, and it comes from page 58 (pdf page 68) of the April OPEC Monthly Oil Market Report....on this graph, the cerulean blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale... 

April 2019 OPEC report global oil supply

despite the small increase in OPEC's production from what they reported a month ago, their preliminary estimate indicates that total global oil production fell by 0.07 million barrels per day to 98.82 million barrels per day in April, but that came after March's total global output figure was revised down by 310,000 barrels per day from the 99.26 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production fell by a rounded 70,000 barrels per day in April after that revision, with lower oil output from Kazakhstan, Canada, China and Russia the major reasons for the non-OPEC production decrease.... the 98.82 million barrels per day produced globally in April was ​still 1.05 million barrels per day, or 1.1% higher than the revised 97.77 million barrels of oil per day that were being produced globally in April a year ago (see the May 2018 OPEC report (online pdf) for the originally reported March 2018 details)...with little change in OPEC's output, their April oil production of 30,031,000 barrels per day represented 30.4% of what was produced globally during the month, up from the 30.2% share they reported for March, before revisions increase​d​ their March global share to 30.4%....OPEC's April 2018 production was reported at 31,930,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding Qatar from last year's total and new member Congo from this year's, are now producing 1,664,000 fewer barrels per day of oil than they were producing a year ago, when they accounted for 32.6% of global output, with a 668,000 barrel per day decrease in the output from Venezuela and a 1,269,000 barrel per day drop in output from Iran from that time more than offsetting the year over year production increases of 188,000 barrels per day from the Emirates, 194,000 barrels per day from Libya, and 201,000 barrels per day from Iraq... 

the 70,000 barrels per day decrease in global oil output ​that was ​seen during April, combined with the 310,000 barrels per day downward revision to March's global output, meant there was a deficit in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us... 

April 2019 OPEC report global oil demand

the table above comes from page 34 of the May OPEC Monthly Oil Market Report (pdf page 44), and it shows regional and total oil demand in millions of barrels per day for 2018 in the first column, and OPEC's estimate of oil demand by region and globally quarterly over 2019 over the rest of the table...on the "Total world" line in the third column, we've circled in blue the figure that's relevant for April, which is their revised estimate of global oil demand during the second quarter of 2019...

OPEC is estimating that during the 2nd quarter of this year, all oil consuming regions of the globe will using 99.20 million barrels of oil per day, which was revised 0.02 million barrels of oil per day higher than their estimate for the 2nd quarter a month ago....meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, OPEC and the rest of the world's oil producers were only producing 98.82 million barrels per day during April, which means that there was a shortfall of around 380,000 barrels per day in global oil production when compared to the demand estimated for the month...

in addition, the downward revision of 310,000 barrels per day to March's global output that's implied in this report, combined with the 30,000 barrels per day upward revision to 1st quarter demand ​that ​we've circled in green means that the 240,000 barrels per day global oil output surplus we had figured for March would now be revised to a deficit of 100,000 barrels per day....however, that follows a revised 350,000 barrel per day global oil output surplus in February and a revised 260,000 barrel per day global oil output surplus in January, so despite OPEC cuts of more than 1.6 million barrels per day in the first quarter of this year, a small global oil surplus for the year to date still persists... 

we should also note that the previous estimate for 2018's oil demand was revised 30,000 barrels per day higher with this report, which we've also highlighted ​with​in that green ellipse...the 2018 demand table on page 33 of the May OPEC Monthly Oil Market Report (pdf page 43) indicates that demand revision was spread evenly across the year, so that means that for all of 2018, global oil demand exceeded production by roughly 18,040,000 barrels, still a comparatively small net oil shortfall that would be the equivalent of less than four hours and twenty minutes of global production at the December production rate...  

This Week's Rig Count

the US rig count was down by just one this past week, but that still meant it was at another 14 month low and continued the ongoing slide that has seen drilling rig activity decrease ​in ​twelve out of the last 13 weeks....Baker Hughes reported that the total count of rotary rigs running in the US fell by 1 rig to 987 rigs over the week ending May 17th, which was also down by 59 rigs from the 1046 rigs that were in use as of the May 18th report of 2018, and quite a bit below the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC announced their attempt to flood the global oil market...

the count of rigs drilling for oil fell by 3 rigs to 802 rigs this week, which was also 42 fewer oil rigs than were running a year ago, and less than half of the recent high of 1609 rigs that were drilling for oil on October 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations increased by 2 rigs to 185 natural gas rigs, which was still down by 15 rigs from the 200 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 natural gas targeting rigs that were deployed on August 29th, 2008...

drilling activity offshore in the Gulf of Mexico increased by 2 rigs to 22 rigs this week, as 3 rigs were added offshore from Louisiana, where there are now 20, and one rig was shut down in Texas offshore waters, where just two rigs remain offshore...those totals are up from a year ago, when 18 rigs were deployed offshore, 17 in Louisiana waters, and one offshore from Texas...

the count of active horizontal drilling rigs was down by 6 to 866 horizontal rigs this week, which was also 53 fewer horizontal rigs than the 918 horizontal rigs that were in use in the US on May 18th of last year, and well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...that is the smallest number of horizontal rigs deployed since March 9th 2018, and means that horizontal rigs are also now at a 14 month low....meanwhile, the vertical rig count was up by 3 rigs to 48 vertical rigs this week, which was still down from the 61 vertical rigs that were in use during the same week of last year...in addition, the directional rig count was up by 2 rigs to 73 directional rigs this week, but those were up by 7 rigs from the 66 directional rigs that were operating on May 18th of 2018... 

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major oil & gas producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of May 17th, the second column shows the change in the number of working rigs between last week's count (May 10th) and this week's (May 17th) count, the third column shows last week's May 10th active rig count, the 4th column shows the change between the number of rigs running on Friday and the number running before the equivalent weekend of a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was the 18th of May, 2018...       

May 17 2019 rig count summary

as ​you can see, there was a 4 rig increase in Ohio's drilling activity this week, despite the pullbacks elsewhere, while the Utica shale only shows an increase of 3 rigs...since the North America Rotary Rig Count Pivot Table (xls) shows that only Utica natural gas rigs are active in Ohio, we can figure that the sole Utica shale rig that had been deployed in Pennsylvania was shut down this week, along with 2 Marcellus rigs that had been operating in the Keystone state, to bring the Utica rig count into balance...the Marcellus shale, meanwhile, shows a three rig decrease, because a Marcellus rig that had been operating in West Virginia was also shut down at the same time...in addition to those, 2 natural gas rigs were also shut down in the northwestern Louisiana portion of the Haynesville shale, but the national natural gas rig count still showed an increase of 2 rigs because ​a net of ​4 natural gas rigs were concurrently started up in basins not tracked separately by Baker Hughes, with Wyoming and Louisiana the most likely locations for those..

oil rigs, meanwhile, were shut down in Texas and also in Oklahoma, even though the Cana Woodford in central Oklahoma had an oil rig start up...in the Permian basin of western Texas, three rigs were shut down in Texas Oil District 8, which​ would be the core Permian Delaware, and three more were shut down in Texas Oil District 8A, or the northern Permian Midland basin, while two rigs were added in Texas Oil District 7C, or the southern Permian Midland basin...since the Permian ​basin ​shows a net 3 rig decrease, those Texas changes means that the rig that was added in New Mexico was deployed in the far western portion of the Permian Delaware...for the remaining changes in activity in Alaska, Oklahoma, and Wyoming, check out the North America Rotary Rig Count Pivot Table (xls), which lists the details on each rig deployment individually, ...

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note: there's more here...

1 comment:

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